Economy

More Americans than anticipated filed claims for unemployment benefits last week, reflecting a backlog of applications from the year-end holidays. Initial jobless claims rose by 36,000 to 482,000 in the week ended Jan. 16, the highest level in two months, from 446,000 the prior week, Labor Department figures showed today in Washington. The jump was due to an “administrative” accumulation from late December and early January holidays, and did not reflect “economic” reasons, a Labor Department spokesman said.

After the double dip in new home sales and NAHB confidence, we are starting to see the beginning of the end of the improvement in firings: initial claims in the week ended January 16 came in at 482,000, higher than the estimate which expected a number of 440,000, which was supposed to be an improvement from the prior week's 446,000. The combination of initial, continuing claims and EUC for the most recent period is a record 10,701,794 Seasonally Adjusted or a whopping 12,021,880 Non-Seasonally Adjusted. The double dip is here, and unfortunately for Obama, he is all out of stimulus bullets.

For all who want to get up to speed on next week's political theater involving AIG, Tim Geithner, Goldman Sachs' Stephen Friedman, Goldman Sachs' Bill Dudley, Goldman Sachs' Lloyd Blankfein, and the endless taxpayer bailouts, here is a terrific timeline for everything relevant to the AIG soap opera.

Mr Bernanke’s in-house Fed economists have found that the Fed wasn’t responsible for the boom which subsequently turned into the biggest bust since the 1930s. Are those the same Fed staffers whose research led Mr Bernanke to assert in Oct. 2005 that “there was no housing bubble to go bust”? The reasons for the US and the UK central banks inflating the bubble range from incompetence and negligence to just plain spinelessness. Let me propose an alternative thesis. Did the US and UK central banks collude with the politicians to ‘steal’ their nations’ income growth from the middle classes and hand it to the very rich?

“Isn’t it funny when you walk into a investment firm, and you see all of the financial advisors watching CNBC — that gives me the same feeling of confidence I would have if I walked into the Mayo-clinic or Sloan Kettering and all the medical doctors were watching General Hospital…"—Senior portfolio manager, UBS

The price of candles in the teeming La Saline market here has climbed 60 percent since last week’s earthquake. A box of matches is up 50 percent. A package of Perdue Chicken Franks has gone up 30 percent. As Haitians begin to turn their attention to rebuilding a crippled economy, the rapid surge in prices of crucial products is just one of the many challenges they face.

""The American people are disgusted with the greed and recklessness of Wall Street," Sen. Bernie Sanders, I-Vt., said in an interview with The Associated Press last month. "People are asking, 'Why didn't the Fed intervene at the appropriate time to stop the casino-type activities of large financial companies?'"

"The state's current operating budget deficit is $2.6 billion, a situation that has state lawmakers scrambling to find program cuts and tax increases to balance the ledger. But Republicans in the Legislature are sounding the alarm about another billion-dollar problem looming for Washington - the unfunded liability in the state's pension system. That number now stands at about $6 billion, they say. "

"Iowa Gov. Chet Culver is looking for more help from the federal government to patch up education and health care spending.

Culver asked a Senate appropriations subcommittee on Thursday for a second round of economic stimulus money. Later, he appealed to the Obama administration to ease rules for existing aid that could force the state to reverse some spending cuts.

The governor told the Senate panel that Congress should extend federal unemployment benefits and provide more aid to states for education, Medicaid and other needs."

"With nearly three-quarters of their seats up for election this year, the nation’s governors are setting the stage for 2010 by warning that the economic downturn is far from over in the states, where tax collections are weak, unemployment is surging and the likeliest outcomes will be unpopular tax hikes and sharp budget cuts."

"Illustrating the depth of states’ fiscal troubles, five governors already have proposed tax hikes, including Illinois Gov. Pat Quinn (D), who must face the voters in a Democratic primary in less than two weeks. Four more have looked to the federal government for more money, including California’s Arnold Schwarzenegger (R), who has presented a budget plan that relies on $7 billion in as-yet-unapproved federal help. And almost every governor who has delivered a speech has prioritized job creation, wary that an unemployed electorate is an unhappy one."

"A common challenge for states this year is the dwindling of federal stimulus dollars, including $87 billion for Medicaid — the joint state-federal program providing health care to the poor — that will run out in December. Governors in some states are predicting that the toughest times may, in fact, lie ahead."

"San Francisco schools are facing a $113 million budget shortfall over the next two years - a staggering figure that would mean layoffs, cuts to popular programs like summer school and increases in class size. "

"Because the city has failed to submit the required balanced budget and three-year financial plan, the city has no spending authority in 2010, which means the city cannot pay it's Jan. 29 payroll or other necessary 2010 obligations, said Katie Wright, chairwoman of the Financial Advisory Authority."

"The unemployment insurance system is in crisis. A record 20 million Americans collected unemployment benefits last year, and so far twenty-five states have run out of funds and been forced to borrow from federal government, raise taxes, or cut benefits. In many other states the situation is deteriorating fast. Using near real-time data on state revenues and the benefits they pay out, we estimate how long state trust funds will hold up. Click on a state to find the latest, plus historical data, and details on tax increases and benefit cuts. "

With the general fundamentals now explained, it's time to apply those fundamentals to current parameters. More specifically, it's time to analyze how gold (and silver) will react as the hopeless insolvency of the United States becomes obvious to more and more people.

One quarter of US grain crops fed to cars - not people, new figures show

New analysis of 2009 US Department of Agriculture figures suggests biofuel revolution is impacting on world food supplies

One-quarter of all the maize and other grain crops grown in the US now ends up as biofuel in cars rather than being used to feed people, according to new analysis which suggests that the biofuel revolution launched by former President George Bush in 2007 is impacting on world food supplies.

The 2009 figures from the US Department of Agriculture shows ethanol production rising to record levels driven by farm subsidies and laws which require vehicles to use increasing amounts of biofuels.

"The grain grown to produce fuel in the US [in 2009] was enough to feed 330 million people for one year at average world consumption levels," said Lester Brown, the director of the Earth Policy Institute, a Washington thinktank ithat conducted the analysis.

Last year 107m tonnes of grain, mostly corn, was grown by US farmers to be blended with petrol. This was nearly twice as much as in 2007, when Bush challenged farmers to increase production by 500% by 2017 to save cut oil imports and reduce carbon emissions.

More than 80 new ethanol plants have been built since then, with more expected by 2015, by which time the US will need to produce a further 5bn gallons of ethanol if it is to meet its renewable fuel standard.

According to Brown, the growing demand for US ethanol derived from grains helped to push world grain prices to record highs between late 2006 and 2008. In 2008, the Guardian revealed a secret World Bank report that concluded that the drive for biofuels by American and European governments had pushed up food prices by 75%, in stark contrast to US claims that prices had risen only 2-3% as a result.

"Continuing to divert more food to fuel, as is now mandated by the US federal government in its renewable fuel standard, will likely only reinforce the disturbing rise in world hunger. By subsidising the production of ethanol to the tune of some $6bn each year, US taxpayers are in effect subsidising rising food bills at home and around the world," said Brown.

"The worst economic crisis since the great depression has recently brought food prices down from their peak, but they still remain well above their long-term average levels."

But ethanol producers deny that their record production means less food. "Continued innovation in ethanol production and agricultural technology means that we don't have to make a false choice between food and fuel. We can more than meet the demand for food and livestock feed while reducing our dependence on foreign oil through the production of homegrown renewable ethanol," said Tom Buis, the chief executive of industry group Growth Energy.

Debt burden now rests more on U.S. shoulders

By Floyd NorrisThe New York TimesFriday, January 22, 2010

The United States government borrowed more money than ever before in 2009, but its largest lender -- China -- sharply reduced the amount it was willing to lend.

The U.S. Treasury estimated this week that during the first 11 months of last year China raised its holdings of Treasury securities by just $62 billion. That was less than 5 percent of the money the Treasury had to raise.

That raised its holdings to $790 billion, leaving it the largest foreign holder of Treasury securities -- Japan is second at $757 billion and Britain a distant third at $278 billion. But China’s holdings at the end of November were lower than they were at the end of July.

Not since 2001, when China was still a relatively minor investor in Treasury securities, had the country shown a decline in holdings over a six-month period.

That little sax icon on my profile sort of says what I'm up to today. Since I need to leave and today's digest isn't up yet can I get someone who sees this to post it under the comments section under Saturday's Daily Digest news?

(Most of Marc Faber's comments are at around 5 minutes into the video)"When you look at the US… it's a total disaster, we're all doomed, we're doomed!" Marc Faber, author of the "Gloom, Doom and Boom Report," told CNBC Friday. Faber and Anthony Thomas from Moody's discuss the global economic outlook.

The total, compiled by the Civic Federation in a report released Friday, shows the hole in the current budget has grown nearly $2 billion to $5.7 billion. The next budget, which needs to be approved in the coming months and takes effect July 1, will not only carry that hole over, but will be written without billions in federal stimulus money and bear the responsibility of paying back loans used to try to balance current spending.

"CARSON CITY -- With Nevada at least two years away from emerging from the worst recession in generations, the Economic Forum determined Friday that state government will have $580 million less in tax revenue to spend than what was put in the state budget last June."

Under Nevada Revised Statutes, state government must protect K-12 education from unanticipated reductions in sales tax revenues that school districts depend on to pay for teacher salaries and educational programs. "

"Above: Why is the City of San Diego now facing a $19 million budget gap a week after the mayor praised the council for passing a balanced budget in December? We speak to Scott Lewis, from voiceofsandiego.org, about what is causing the projected deficit to grow."

"CARL DeMAIO (San Diego City Councilman): Well, the city budget was never balanced in the first place, that's why I voted against it in December. It relies on $100 million in one-time monies, accounting shifts, and loans. It did not book $60 million worth in the cost of retiree health care benefits. So that's $160 million of debt right there that was being run in this year's budget. On top of that the city just got a pension payment from the city's pension system.

The mayor's office was off by $20 million on the pension payment, and that's going to require that the city come back and find out where we're going to find those monies. This is a budget that really is not good for San Diego taxpayers."

(The speech is posted by a blogger and he has some comments first, so scroll down to see the transcript. Click here for the videos of Ron Paul giving the speech)

" The concerted effort to prevent the correction the market demands, guarantees a prolonged agonizing crisis. Every effort to reverse the tide will depend on spending, higher deficits, increased taxes and money creation. This effort is now providing another grand bubble: the dollar/bond bubble.

The next event will be a dollar crisis. A full-blown dollar crisis will be worse than our current financial crisis. The extent of a dollar crisis depends on whether or not the Washington politicians wake up and change their ways-a dubious hope.

More likely, the insanity will continue until some not yet known event will undermine the confidence of the dollar worldwide. Signs of less desire by foreigners to hold our dollars are already present. I'm certain our Treasury and Federal Reserve are pulling out all stops to prevent a massive run on the dollar. At present the "orderly" retreat from the dollar is working. But it won't last."

It is impossible to predict the time when confidence will be lost, but it can come quickly. Resorting to buying other paper currencies will not be of much help. When the dollar crashes, most likely the purchasing power of all currencies-since all countries hold dollars as a reserve-will go down as well.

This means that dollars and other currencies will go into buying consumer items, precious metals and other physical properties. Consumer prices will soar, as well as interest rates. The central bank will lose control; and the more they inflate, the worse the confidence becomes. The interest rates will respond to these efforts by rising sharply.

If the Fed tries to reverse the run on the dollar, interest rates will also soar, and the pain on the American citizens will be of such proportion that political chaos will result. Either scenario leads to political and social chaos-the third event, and the most dangerous.

With no ability of the federal government to fund its commitments, international or domestic, major changes will occur in our system. The social unrest will elicit cries for government to exert unusual force to head off a complete breakdown of law and order. The ultimate trap will be set for a system of government claiming to protect a free society. If more power and police authority are not given to the federal government, it will be argued that only anarchy will result. If more government policing power is given, it will mean a lethal threat to civil liberties. Already we have permitted the notion that a single person, the Attorney General or President, can decide who is an "enemy combatant", thus denying that individual the right to habeas corpus, permitting indefinite detentions without charges made. This attitude toward civil liberties has changed significantly since the fear built around 9/11.

"“According to my projections, California will drop below its $2.5 billion prudent minimum cash balance on March 30 by $1.3 billion. On April 1, the state will be in the red by $197 million, and our resources to pay bills are not expected to return to safe levels until April 21,” Chiang continued.

The state is facing a $19.9 billion budget deficit over the next 18 months. That amount includes a $6.6 billion shortfall in the current fiscal year, a $12.3 billion projected shortfall for 2010-11 and money needed for a $1 billion reserve."

"Perry’s message was grim. The mounting budget deficit will force layoffs, and this clearly troubled a lawmaker who started in city hall as an aide during the prosperous days. Now she favors a halt to hiring police officers even though her downtown-through-South L.A. includes crime heavy areas. She fears the threat municipal bankruptcy. “I have to laugh when people say it isn’t real,” she said."

You can't just make up jobs. You must have a healthy economy to have jobs and you must have jobs to have a healthy economy. The way to get back to this loop is to let the market sort itself out. To do that the government has to stop interfering, let prices seek their own level.

I'm sure its much more complicated than that but that is the general idea.